Tax critique uses faulty math

The Fair Tax Act proposes a tax on all new merchandise and services in place of all income taxes, payroll taxes, corporation taxes and taxes on dividends, interest and capital gains.

Patrick R. BurkettBend, Oregon

The Fair Tax Act proposes a tax on all new merchandise and services in place of all income taxes, payroll taxes, corporation taxes and taxes on dividends, interest and capital gains.Critics of the act, which proposes a 23 percent inclusive tax, have confused the issue by saying that this law is in reality a 30 percent tax.To clear up this misinformation, consider the following explanation. The 23 percent tax is included in the stated price of each item or service.Thus for a $100 item, $23 goes for taxes, and the remaining $77 pays the cost of the item.This is the same as saying that if you are in the 25 percent income tax bracket, for every $100 you earn, $25 goes for taxes and you keep $75.On the other hand, if you divide $23 by $77 you come up with a 30 percent tax; but to be fair, your income tax rate by this same method would be calculated by dividing $25 by $75, which is 33 percent.And if you add in your $7.65 payroll tax for social security, you now pay $32.65 and keep $67.35, which is really a 48.5 percent tax.Thus the 30 percent fair tax rate looks good.Patrick R. BurkettBend, Oregon

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